House Equity as Pension

mrcharrington

Hi All

I imagine this has been posted before but cannot find a similar circumstance.

My parents own their own home outright with nothing owing.
The house is valued around £160k.
Despite 45 years of self-employed toil all my father has is his house and a state pension - he is in his 70s.Mum is 65 and still works.

Dad is in poor health due too his work and is stuck in the house.

My 3 siblings and I would like to buy the house on a 4 way interest only morgtage to release the money they have. Were not interested in our inheritance - they earned it let them spend it as they have never had any real money to enjoy.

As we cannot afford a hefty deeposit for the morgtage our parents will sell the house at a rate taking into account the 20% cost of a deposit. I believe this might be called a gifting deposit.

They get the rest to possibly buy an annuity to give them a little extra and a small lump sum to enjoy.

we will pay the interest until they no longer require the house (subtely put) through their demise or nursing home. Were essentially looking at avoiding the dodgy equity release companies and also letting the greedy politicians get their snouts in our parents hard earned gains.

Is this legal?

What rights do the local authority have in case of poor health requiring care?

What, if not this, would be the way forward?


Thanks in advance.

jamesd

It's legal and possible.

Is there currently any reason to believe that either of them will require local authority care? Planning before there's some reason to believe it will be required based on the situation of an individual, not generic averages, is permitted and can avoid a means test or sale of assets.

getmore4less

You need to watch for CGT in the future but with 4 owners one years allowance is quite high.

lisyloo

You need to be careful to avoid "deliberate deprivation".
If the lcoal authority believe this was done to avoid paying for long term care then they can roll back the transaction.
You would need to take proper legal advice on that.
The reply from jamesd implies it could be done, although how you would judge that neither of them will need care, I don't know.

Another alternative is to consider downsizing.
My husbands parents downsized in 2003.
This was not only financial but the increasing problems with housework and DIY maintenance (they are now 83).
They now live in a 2 bed flat where they have a warden and emergency pull cords.
As well as free-ing up equity this gives them company, low bills and a cheap plan to maintain and clean.
They can now do no maintenance or cleaning so that's quite important as they have to pay for everything.

It's also important to note that they receive attendance allowance, carers allowance, pension credit, council tax allowance, free TV licence and winter fuel allowance. In fact they are given TOO much money in benefits.
Is you father getting everything he is entitled to?

I know she is fairly young but I would seriously recommend considering downsiding mostly due to the practical difficulties and financial cost of keeping the place up together in later years as well as the equity that could be released.

Loughton_Monkey

I think you are missing the obvious.

The four of you are constructing some sort of 'deal' under which you will all pay a substantial contribution for interest on mortgage/re-mortgage/equity release or whatever. And the end result? Your inheritance will be whittled down to very little, possibly. All very complicated and expensive.

Do the brainlessly obvious.

Sit down, all 4 of you. Decide how much you each would have paid in mortgage interest costs. All set up standing orders to pay this amount into an account (in the name of any one of you - preferably a non/low tax payer). Let them live on what small pensions they have, even [gritting teeth] what benefits they can claim on their income/asset levels. But simply use the money in the savings account to buy them holidays, house repairs, luxuries etc.... If benefits are involved, don't make this a 'regular income'. Just ad-hoc 'loans' or 'gifts' that are perfectly legal.

Your 'investment' into the savings account will be returned with embarrasingly high 'interest' when the house is subsequently sold at market rate (unencumbered).

Mallotum_X

Loughton_Monkey wrote: »

I think you are missing the obvious.

The four of you are constructing some sort of 'deal' under which you will all pay a substantial contribution for interest on mortgage/re-mortgage/equity release or whatever. And the end result? Your inheritance will be whittled down to very little, possibly. All very complicated and expensive.

Do the brainlessly obvious.

Sit down, all 4 of you. Decide how much you each would have paid in mortgage interest costs. All set up standing orders to pay this amount into an account (in the name of any one of you - preferably a non/low tax payer). Let them live on what small pensions they have, even [gritting teeth] what benefits they can claim on their income/asset levels. But simply use the money in the savings account to buy them holidays, house repairs, luxuries etc.... If benefits are involved, don't make this a 'regular income'. Just ad-hoc 'loans' or 'gifts' that are perfectly legal.

Your 'investment' into the savings account will be returned with embarrasingly high 'interest' when the house is subsequently sold at market rate (unencumbered).

But if care is needed the house could still be sold, and the loans/gifts would not be repaid.

Some sort of legal charge could be put on the house to cover such loans perhaps.

You may be better speaking with a solicitor or age concern for instance who may know how you can help them now but avoid losing the house to cover future care fees.

However if they do need care in the future and the house is gone then they will be stuck in whatever care homes the council will pay for, and some of these can be pretty grim. Whilst you may protect your interest in the property your parents may not have a pleasant care environment.

Have you explored the idea of downsizing or even them moving in with one of you?

mrcharrington

Well thanks for the fast replies.

Neither need any help from local authority carers at the moment or in the immeadiate future (fingers crossed).

Using Loughton Monkey's proposal would the best plan be to sign over the house to the four of us (is the 7 year rule still applicable?) therefore protecting if from being siezed as an assest in case they require full time care???

I like your idea LM but would like them to have a bit of a blow out while Dad still can - perhaps a cruise or something so would it make sense for us to get a loan and pay for it out of our monthly payment/savings account.

Going along mortgage route would it be lawful for us to be gifted the house by parents and simply re-morgtage it for say half the amount to avoid a deposit but allow them to live rent free?

Thanks

property.advert

One of the reasons why giving a home away and not paying market rent causes problems is simply because no rent is paid. However, if a house is "sold" and that consideration is used to purchase a private annuity (from the children) and a market rent is charged, then does that not close the local authority argument ?

getmore4less

mrcharrington wrote: »

Well thanks for the fast replies.

Neither need any help from local authority carers at the moment or in the immeadiate future (fingers crossed).

Using Loughton Monkey's proposal would the best plan be to sign over the house to the four of us (is the 7 year rule still applicable?) therefore protecting if from being siezed as an assest in case they require full time care???

I like your idea LM but would like them to have a bit of a blow out while Dad still can - perhaps a cruise or something so would it make sense for us to get a loan and pay for it out of our monthly payment/savings account.

Going along mortgage route would it be lawful for us to be gifted the house by parents and simply re-morgtage it for say half the amount to avoid a deposit but allow them to live rent free?

Thanks

There is no 7 years limit for deprivation of assets.


Cruises are not expensive

Your mortgage of £160k*80% @4% is £5120 per year

I could find them 3-4 weeks cruising for that, or one very good one.
(insurance might be an issue)

Loughton_Monkey

I'm no expert in 'protecting' a house from care fees. Giving it way is unlikely to do anything, and my understanding is that while 'care' only applies to one of them, they can't force a sale anyway.

If you get to the stage of both in care, then maybe it is worth seeing what can be done [take legal/expert advice]. But I see that as a seperate issue.

I'm sure within the 4 of you, you can establish an amicable 'contribution' scheme into a joint pot - and if cash flow is a temporary issue, then it only takes one of you to stump up the 'readies' and get it back 'on the drip'. Just needs normal sibling co-operation and a bit of sensible accounting.

[Many people, like my wife, did similar thing years ago. Four siblings bought the council house. Children got an inheritance they wouldn't have had. Parents had rent free accommodation & more cash. Everyone a winner].

mrcharrington

Thanks again all

LM Im a little confused by your last post (as you can probably guess finance isnt a strong point but I can fix anything ha ha).

You said that the 4 of us pooling say £100 month each into a joint account then giving parents proceeds in various guises was better option as its not dead money being spent on interest that we dont see a return on - I get that and sounds good.

But in your last post you state your wife bought her mothers council house and im assuming made a few bob via the right to buy scheme and released some of the cash for mum.

This sounds like my original idea-ish.

So are we better buying the house outright at 80% of value, give them the cash and allow them to live their as, shall we say, caretakers. Or to reduce our monthly payments put a significant amount of the cash in a healthy returning account to off set some of the mortgage payments?

Sorry about this i need leading by the nose!